55 Pages Posted: 2 Oct 2007 Last revised: 13 May 2014
Date Written: November 19, 2007
We find a significant discontinuity in the pooled distribution of reported hedge fund returns: the number of small gains far exceeds the number of small losses. The discontinuity is present in live funds, defunct funds, and funds of all ages, suggesting that it is not caused by database biases. The discontinuity is absent in the three months culminating in an audit, funds that invest in liquid assets, and hedge fund risk factors, suggesting that it is generated neither by the skill of managers to avoid losses nor by nonlinearities in hedge fund asset returns. A remaining explanation is that hedge fund managers avoid reporting losses to attract and retain investors.
Keywords: hedge funds, return management
Suggested Citation: Suggested Citation
Pool, Veronika Krepely and Bollen, Nicolas P. B., Do Hedge Fund Managers Misreport Returns? Evidence from the Pooled Distribution (November 19, 2007). Available at SSRN: https://ssrn.com/abstract=1018663 or http://dx.doi.org/10.2139/ssrn.1018663